Retail chain Toys R Us looks set to be saved from collapse after reaching a deal with the pensions lifeboat.

The deal was brokered shortly before a vote on proposals to save the toy seller, avoiding the loss of 3,200 jobs and the closure of all its UK stores including at Norwich and Ipswich.

The Pension Protection Fund (PPF) had been set to vote against the company voluntary arrangement (CVA) which would have forced the UK arm of Toys R Us into administration in the midst of the busy Christmas period.

The PPF had refused to back the plans unless the retailer paid £9m towards a £25m to £30m pensions shortfall.

It is believed the US-owned firm, whose parent company has filed for bankruptcy protection in America, was unable to meet that requirement but has managed to make an agreement to pay a larger sum over the next three years.

Malcolm Weir, the PPF’s director of restructuring and insolvency, said: “We have been working closely with Toys R Us and their advisers in the run-up to the CVA vote. We can confirm that an agreement has now been reached and we will now be voting in favour of the proposals at the CVA meeting today.”

In total, Toys R Us has agreed to pay £9.8m into the pension plan, made up of £3.8m in 2018, with a further £6m promised over 2019 and 2020.

“This offer goes a long way to addressing the PPF’s concerns and in de-risking the pension scheme, offering greater protection for the current and retired members in the pension scheme.

“The PPF will always seek assurances on behalf of the pension schemes and pension scheme members it protects, as well as consider the interests of other UK companies that pay the Pension Protection Fund levy.”

Other creditors include the firm’s landlords, who will stomach rent cuts as part of the restructuring.

However, while the CVA will allow Toys R Us to stay afloat, at least 26 loss-making UK stores will shut as part of the restructure, meaning up to 800 jobs are set to be lost.

The Ipswich store was named in the tier of top-performing shops, while Norwich was in the third of five groups, meaning it needed to secure a rent reduction of at least 35% within seven months of a CVA or face closure.

CVAs allow businesses with debt problems to make an agreement with creditors over the repayment of some or all of their debt.

Steve Knights, managing director of Toys R Us UK, said: “We are pleased to have secured the support of our creditors and will be working closely with them in the months ahead.

“The vote in favour of the CVA represents strong support for our business plan and provides us with the platform we need to transform our business so that we can better serve our customers today and long into the future.

“All of our stores across the UK will remain open for business as normal until Spring 2018. Customers can continue to shop online and there will be no changes to our returns policies or gift cards across this period.”

Toys R Us has said that trading has suffered as its warehouse-style stores, opened in the 1980s and 1990s, have proved “too big and expensive to run”, while it has also struggled to keep up with online competitors.

Why has Toys R Us struggled?

The retail sector has been facing challenging times with competition from online shopping and changing customer habits.

Commercial property expert Guy Gowing, managing partner at Arnolds Keys, said a failure to adapt its model had contributed to the struggles at Toys R Us.

He said: “The problem is they haven’t managed to evolve. While out of town retailing has a place if it is something that is a fun product you have got to make an experience of it.

“Smaller toy shops have been much better at looking after their customers and making it enjoyable.

“I remember being a 10-year-old boy and the wonder of visiting a toy shop.

“Piling boxes on boxes just doesn’t cut it.

“Some products you buy on price and some you buy on experience.

“Online shopping can have lower prices and people now go into a shop in Norwich to browse and then buy it online.”

Ratula Chakraborty, University of East Anglia senior lecturer in business management, said: “Toys R Us is not alone among big box retailers struggling to compete as consumers switch to shopping online, especially for toys and electrical goods.

“Store closures are inevitable, and the retailer may even entirely exit the UK if its profitability cannot be restored.